Orange County’s Tight Multifamily Market

High-Paying Jobs Boost Demand

Steady employment and population growth in the context of a high barrier to homeownership underpin apartment demand in Orange County, which continues to attract multifamily developers and investors alike. As construction activity has yet to catch up with demand, the occupancy rate in stabilized properties remained high over the past 12 months, at 95.9% as of March, despite the delivery of 4,789 units in 2018.

The metro recorded an increase in higher-paying jobs in recent years, particularly in middle and highly skilled industries in professional and business services, which gained 8,300 positions in the 12 months ending in March, as well as in education and health services, which added 4,400 jobs. The leisure and hospitality sector gained 4,100 positions, boosted by the 50 million visitors spending more than $13 billion last year, according to the Orange County Visitors Association.

Multifamily investors are drawn to the market’s stability and lucrative assets, having pushed sales volumes above the $1 billion mark every year since 2015. Last year, a limited inventory of large for-sale properties steered buyers toward older suburban Class C assets of less than 100 units, with acquisition yields possibly reaching 8.0%. We expect the average Orange County rent to advance 2.4% in 2019

Rent Trends

Rents in Orange County rose 2.3% year-over-year through April, trailing the 3.0% national rate. The metro’s average rent stood at $2,089, well above the $1,436 U.S. average. Despite the delivery of more than 4,700 units in 2018, occupancy in stabilized properties remained high, at 95.9% as of March, unchanged over 12 months and above the 94.8% national figure.

Rents in the working-class Renter-by-Necessity segment rose 2.3% to $1,876, while Lifestyle rates went up 2.4%, to $2,395. Demand is strong across asset classes, boosted by an ongoing uptick in higherpaying jobs, particularly in middle- and high-skilled industries in professional and business services and health care. Another factor is the metro’s high barrier to homeownership, as only 12%—or 54,970 households—of Orange County renters have the financial wherewithal to buy a home, according to the California Association of Realtors. Going forward, we expect rent growth to remain moderate, with the average rate advancing 2.4% in 2019.

Growth was highest in Fullerton–South, a Millennial magnet with a median age of 35, where rents rose 4.7% year-over-year to an average of $1,795. Huntington Beach came in second (4.1%), followed by Yorba Linda (3.9%), Mission Viejo–Lake Forest (3.6%) and Buena Park–Cypress (3.4%). The priciest submarkets were Newport Beach (1.7% to $2,770) and South Irvine (-0.1% to $2,524).

Economic Snapshot

Orange County gained 14,200 jobs in the 12 months ending in March for a 1.1% uptick, trailing the 1.6% national average after decelerating over the past three quarters. In line with nationwide trends, the metro’s unemployment rate has been dropping in recent years, standing at 3.0% as of February. „

Professional and business services led growth, with the addition of 8,300 jobs. The metro’s overall office-using jobs exceeded 28% of total employment as of April, its highest level in recent years. Orange County’s highly skilled labor force continued to attract employers in the technology, media and marketing industries, including startups, especially around John Wayne Airport and Irvine Spectrum. The metro is also seeing increased coworking leasing activity coming from companies such as WeWork, BizHaus, Spaces, Work Well Win and Hera Hub. „

Education and health services gained 4,400 jobs, a trend that is set to continue as the region’s senior population rises while every other age group declines. Leisure and hospitality employment rose by 4,100 jobs, boosted by the metro’s 50 million visitors in 2018; they spent more than $13 billion at restaurants, stores and other businesses, according to the Orange County Visitors Association. The high number of tourists, drawn to the area’s beaches and theme parks, represented a 1.6% increase over the previous year and included 4.6 million international travelers.